Starbucks Condemned by Chinese State Media for Higher Prices

Starbucks Corporation (NASDAQ:SBUX) was condemned by China Central Television (CCTV), for charging Chinese consumers higher prices for its coffee compared with other countries.

Starbucks expensive in China market

Last Sunday, the Chinese government-controlled television station dedicated 20 minutes of air time to criticizing the American coffee company. The CCTV pointed out that SanDisk Corporation (NASDAQ:SNDK) is expensive in China given that fact that the prices of some of its products are 50% higher than in India, the United States, and the United Kingdom. For example, CCTV said the price of a medium-size latte at a Starbucks coffee shop in Beijing is 27 yuan or $4.43, which is 30% higher than the price at the company’s coffee shop in Chicago.

CCTV interviewed Wang Zhendong, director of the Coffee Association in Shanghai and he told the state broadcaster that Starbucks Corporation (NASDAQ:SBUX) has been enjoying high prices for its products in China because of “blind faith of local consumers” for the company and other Western brands.

CCTV described the profit margin of Starbucks Corporation (NASDAQ:SBUX) in China and the Pacific region as excessively high at 32% compared with 21.1% in the United States and 1.9% in Africa, Europe, and the Middle East.

Starbucks on Chinese media concerns

Starbucks Corporation (NASDAQ:SBUX) said it understands the recent concerns raised by the Chinese media, however it pointed out that the figures presented by CCTV do not represent the company’s operations in China because they included Starbucks’ financial results from other countries in Asia Pacific.

Starbucks, the largest coffee chain worldwide, said, “Each Starbucks market is unique and has different operating costs, so it would be inaccurate to draw conclusions about one market based on the prices in a different market.” Starbucks Corporation (NASDAQ:SBUX) explained that its prices for its products are different in every market because the costs of commodities, labor, real estate and infrastructure investment vary from region to region.

James Button, senior manager at SmithStreetSolutions in Shanghai commented that consumers in China are “increasingly aware” of the price differences and that it has become a very hot topic. He said, “It is really common knowledge at this point, but branded coffee is something people are treating as a luxury and they are willing to pay for that luxury experience.”

Some of the reactions of consumers on Sina Weibo, a microblogging site in China similar to Twitter, support Starbucks Corporation (NASDAQ:SBUX). “Those who are saying Starbucks is expensive are probably those who don’t drink much coffee. The prices are competitive and the quality makes people feel safe,” wrote user Wang Shuo.